Record demand and new launches have helped to define a banner year for fixed income in 2025. With 2026 around the corner, it’s an ideal time to explore the best ways to maximize fixed income exposure as the Fed continues easing monetary policy.
With the third and final rate cut of 2025 in the books, more could come in 2026. The rate-cutting cycle means investors should position their portfolios to attain the most efficient way to extract income. One of the best ways to do this is through active management. The fund’s portfolio managers have the autonomy to adjust holdings whether the Fed is cutting, raising, or keeping rates steady.
Because passive ETFs are tethered to an index, active ETFs offer the distinct benefit of flexibility. Bond markets are complex, and portfolio managers familiar with the idiosyncratic nuances of the bond market can adjust portfolios to suit the current environment. This makes active funds flexible, all-weather solutions in any market landscape. Whether fixed income investors are looking for core exposure, maximum income, or both, active managers can tailor the holdings to achieve their investment objectives.
With regard to core exposure, two options from Vanguard include the Vanguard Core-Plus Bond ETF (VPLS) and the Vanguard Core Tax-Exempt Bond ETF (VCRM). VPLS adds exposure to U.S. Treasuries, mortgage-backed and corporate securities, and emerging markets debt of varying yields, maturities, and credit qualities. It can serve as a standalone core bond exposure that reaches for additional income opportunities.
Munis have been in demand for their high yields, strong credit fundamentals, and federal tax-free income. VCRM actively seeks out muni debt from U.S. states and local governments or agencies whose interest is exempt from federal income taxes and the federal alternative minimum tax.
A High Yield Muni Solution
Getting high yield exposure doesn’t mean investors are relegated to the riskiest corporate bonds. High-yield munis offer another alternative through the Vanguard High-Yield Active ETF (VGHY) introduced earlier this year.
VGHY is the first high yield active ETF from Vanguard, offering investors maximum income extraction in munis through the convenience and flexibility of an active ETF wrapper. Because munis carry their own complexities, nuances, and idiosyncratic risks, VGHY’s active strategy is imperative in the high-yield muni market.
All three of the aforementioned active funds come with low expense ratios. Additionally, the Vanguard Fixed Income Group — who are adept at navigating the bond markets — back these funds.
To get more information on the complete list of active ETF offerings from Vanguard, click here.
For more news, information, and strategy, visit the Fixed Income Content Hub.
